Just days after Donald Trump accused the Federal Reserve of playing politics with low interest rates during the first presidential debate, Congressman Scott Garrett challenged Chairman Janet Yellen today on whether Fed officials were guilty of playing politics this campaign season. In particular, Garrett questioned the actions of Fed Governor Lael Brainard who raised eyebrows earlier this year by donating the legal maximum to Hillary Clinton’s campaign.
Since the Fed’s decision to maintain low interest rates is widely seen as benefiting Hillary Clinton, and given that Brainard’s actions opened herself up to what Garrett described as “the appearance of conflict,” Garrett asked whether she had recused herself from the FOMC. Yellen responded that Brainard did not, was not asked to, and was not barred from donating to political campaigns according to the Hatch Act.
Garrett pushed further. Noting that multiple media outlets have been openly speculating about a potential role for Brainard in a Clinton administration, the congressman asked Yellen whether such a conversation between Brainard and Clinton would be a violation of Fed policy. Yellen responded by saying that while she would need to check with Fed lawyers, she didn’t see any conflict.
That’s right, according to Janet Yellen, there is nothing wrong with a sitting Federal Reserve official lobbying a presidential candidate for a future job, even though they have the ability to vote on Fed decisions that can dramatically impact the American economy.
Going further, Garrett offered several other examples that helped unravel the façade of a non-political Fed. He noted that many credited Ben Bernanke’s decision to indefinitely extend his quantitative easing program, just a few months before his re-election, for easing economic concerns that had been bubbling for months prior. Also, Garrett pointed out that current Fed officials regularly meet and work with Obama administration employees. While much of this work is a direct consequence of the Fed being tasked with greater regulatory responsibilities following the Dodd-Frank Wall Street Reform Act, a politicized Fed can’t pretend to be non-partisan, even if it’s simply an unfortunate consequence of bad legislation.
Of course, it shouldn’t come as a huge surprise that the Fed is political given the institution’s history. For example, Arthur Burns, who served as Federal Reserve chairman under Richard Nixon, kept detailed records in his personal diary about the close relationship he had with the White House. Though making sure to not be seen together out in public, Burns described numerous private meetings and telephone conversations with the president.
His relationship with Nixon also helped him overcome his concerns about the president’s plans to close the gold window, writing that he “assured the President that I would support his new program fully.”
So based on the well-documented actions of the Federal Reserve, both past and present, it should be obvious that its claim of independence is as shallow as its numerous promises to raise rates and return to normal monetary policy.
This is worth remembering the next time you hear a politician evoke “Fed independence” in explaining why they don’t support an audit of the Fed.
Tho Bishop directs the Mises Institute's social media marketing (e.g., twitter, facebook, instagram), and can assist with questions from the press. Contact: email; twitter; facebook.
